Beulah Balanced Portfolio

Beulah Balanced Portfolio Quarterly Fact Sheet September 2018 Level 9, 401 Collins Street, Melbourne Vic 3000 T +613 9270 9170 F +613 8080 5983 W beulahcapital.com Beulah Capital Pty Ltd ABN 72 079 169 127 AFSL 330951 beulahcapital.com 1

Investment Approach Universe The portfolio aims to achieve a rate of return that matches inflation (CPI) plus 4 over a rolling 5 year period. INVESTMENT STRATEGY The portfolio targets a 40 investment in income assets (cash and fixed income) and 60 investment in growth assets (shares, property and international) either directly or through specialist wholesale fund managers. The allocation to individual asset classes is managed on a dynamic basis and may vary within nominated ranges. The portfolio is invested across a mix of shares, property and fixed income securities. The targeted use of specialist managers also allows access to investment expertise and a diverse range of securities not readily available in an individual portfolio of this size. RISK PROFILE Medium: The estimated frequency of an annual negative return being less than 1 in 5 years. MINIMUM INITIAL INVESTMENT $100,000 on a standalone basis MINIMUM SUGGESTED TIME FRAME 5 Years Performance Beulah Balanced Portfolio 3 Month 6 Month 1 Year 3 Year 5 Year Portfolio Return 0.58 1.24 3.81 5.27 6.13 7.68 Benchmark (CPI +4) 1.51 3.00 6.03 5.74 5.96 6.25 Incept Relative Return -0.93-1.76-2.22-0.47 +0.17 +1.43 Performance Notes: 1: The performance of each multi-asset class model portfolio is compared to its stated investment objective (the benchmark). That is, to exceed the Consumer Price Index (CPI) by a fixed margin 2: Model portfolio returns assume dividends are reinvested 3: Returns greater than 12 months are annualised 4: Returns are calculated before transaction, portfolio and MDA fees as these differ pending what platform the investment is held. 5: Returns are rounded to two decimal places 6: Returns and holdings may vary between investors given the nature and timing of beneficial ownership under an MDA structure 7: This document is for marketing purposes only 8: Past performance is not an indication of future performance beulahcapital.com 2

Asset Allocation Fixed Interest Sector Actual Range Australian Equities 26 10-60 International Equities 30 10-55 Property Securities 0 0-12 Alternatives 15 0-24 Fixed Interest 19 10-35 Cash 10 0-40 Contribution to Performance Company Alt's Cash Contribution to performance Australian Equities 0.62 International Equities 0.89 Property Securities - Alternatives -0.98 Fixed Interest 0.01 Cash 0.04 Aust Equities Int'l Equities Market Review Global equity markets gained 6.5 in the third quarter of 2018 against a backdrop of rising bond yields and an escalation in trade tensions. Gains were led by the US as GDP growth of 4.2 and strong company earnings growth, boosted by corporate tax cuts, spurred equities higher. Healthcare followed by Technology and the newly formed Communication Services led the gains as growth stocks rallied again in August. A lift in US wages growth to 2.9, a continuation of strong employment growth, together with a rise in core inflation to the US Federal Reserves (Fed) 2 target also set the scene for further monetary policy tightening. European stock markets made only modest gains in the quarter despite the ongoing improvement in European fundamentals and continued positive earnings momentum. Corporate earnings have been strong in 2018 with most companies beating second quarter earnings estimates. It is mainly external events that have weighed on returns in the region. Energy and industrial stocks were amongst the leading gainers. By contrast, real estate, telecommunications and consumer staples were the main laggards. Financials made a positive contribution overall, but banks were generally weaker amid concerns over exposure to emerging markets as well as worries over the Italian budget. Japanese equities reached a 27 year high in September amid a weaker yen and greater clarity on the medium-term policy outlook following Prime Minister Abe s re-election as his party s leader. Emerging Markets faced headwinds from escalating trade tensions, concern around Chinas growth rate, tighter US monetary policy and a stronger US dollar. The most vulnerable countries were those with large current-account deficits and foreign financing needs. Disclaimer This report is for marketing purposes and provides general information only. It does not take into account the investment objectives, financial circumstances or needs of any person. To the maximum extent permitted by law, Beulah Capital Pty Ltd, its Directors and employees accept no responsibility for any loss or damage incurred as a result of action taken or not taken on the basis of information contained in the report or any omissions or errors within it. Before making any decision you should consider the latest Product Disclosure Statement or Financial Services Guide and assess whether the product and/or service is appropriate. It is advisable that you obtain professional financial, legal and tax advice before making any financial investment decision. Beulah does not guarantee the repayment of capital, the payment of income, or the performance of its investments. beulahcapital.com 3

Even so, most Emerging Market countries managed to report positive gains with those benefiting from a sharp rise in the oil price during the quarter leading the gains. Chinese equities fell the most on concerns around the nation s economic growth rate. Further, uncertainty relating to the impact of US tariffs on the supply chains of Chinese consumer discretionary companies hit stocks in the sector sharply. The sector detracted 100 percentage points off the Emerging Markets index return of 1.17 in AUD terms. The Australian equity market gained ground in the third quarter, adding 1.5 and bringing the year to date gain to 5.9, compared with global equities in USD terms at 5.6 and in AUD terms, 14.2. Better than expected economic growth, a modest improvement in earnings and low interest rates continue to support some sectors within the market. Following the US lead, communication services and IT were the top performers with the former boosted by a strong recovery in the telcos. Materials and utilities were the only sectors to detract from returns. Electricity retailers including Origin and AGL are facing pressure around soaring power prices. The Australian economy continues to perform better than expected as GDP grew 0.9 in the June quarter, taking the yearly growth figure to 3.4, the fastest pace of economic growth since 2012. Australia is seeing good employment growth and solid business conditions. The NAB August Survey shows that the construction industry continues to lead the way, spurred by a large pipeline of residential and non-residential construction. Both household and government consumption growth has picked up this year although it has been partly funded by a decline in savings while wages growth remains anaemic. House prices have been declining for 12 consecutive months and in Sydney prices are down 6.1 while in Melbourne prices are off 3.4. Central Banks continued on their path of monetary policy tightening. The Fed lifted the official cash rate to 2.25 at the September meeting, the third move this year. The Bank continues to project another hike in December and a series of hikes to around 3.4 by 2020. Markets are more dovish, expecting a peak at just under 3. The European Central Bank (ECB) re-iterated that it will cease its bond purchase program at year-end and that rates could begin to move higher in 2019 as it becomes more confident that inflation is rising. At the same time the Bank of Japan (BOJ) remains committed to lifting inflation and will maintain an extremely accommodative stance. Despite the recent strengthening in growth, the Reserve Bank of Australia (RBA) is reluctant to raise interest rates, as inflation remains at the bottom of the RBA s target range. Global bond yields lifted in September with US 10 year yields pushing above 3. This move pushed the real Fed funds rate into positive territory for the first time since 2007. Meanwhile, the US yield curve flattened further in the quarter even with 10 year yields moving higher. Australian bond yields followed US bond yields higher in September, ending the month at 2.69, up from its quarter low of 2.52. Australian 10 year yields are now 37 basis points below US counterparts while the 2 year differential is now -80 basis points. The bond index gained 0.48 for the third quarter, taking the year to date return to 3.7. Elsewhere, with OPEC and Russia refraining from increasing production and US sanctions on Iran set to begin in November, the oil price continued its run higher, ending September up 16 since mid-august. This is helping the AUD offset some of the downward pressures from a stronger US dollar. The AUD/USD fell another 2.5 in the quarter. Portfolio Review The Beulah multi asset models made modest gains in the third quarter of 2018. The models out-performed the broader market in both July and September, however another sharp rally in US equities in August meant the models under-performed over the quarter. Growth assets in aggregate under-performed due to an underweight position in US equities and overweight allocations to Asian equities and Global Small Caps. July offered the value factor a brief reprieve from the rally in growth stocks but they came back in full force in August, overshadowing value stocks yet again. Being underweight growth in favour of value also hurt performance in August. beulahcapital.com 4

Alternative Investments was the biggest drag on performance with the L1 Capital Long Short Fund and the Dalton Street Capital Absolute Return Fund losing 7.2 and 9.5 in the quarter, respectively. Despite impressive track records, both Funds have disappointed since their inclusion in the models in March of this year. With its strong value bias, the L1 Capital Long Short Fund lost ground across both long and short positions. The Fund has also been adversely impacted by some stock specific left field events. Meanwhile, the ongoing strength of the US dollar continued to hurt the Asian equities within the Dalton Street Capital Absolute Return Fund. That combined with low levels of volatility across the US and Asian markets meant the Fund lost more ground in the third quarter. Both Funds are being monitored closely. Within International Equities, the Pengana Global Small Companies Fund was the poorest performer losing 6 in the quarter. This was partly due to regional positioning but mostly the result of stock specific issues. Meanwhile our core holding in the asset class, the Legg Mason QS Global Equities Fund was again the standout performer gaining 8 in the period. The Antipodes Global Fund has been under-performing since the start of this year but recent performance has improved with the Fund gaining 4.2 in September, outperforming the index by over 1.5. The Fund has gained almost 21 since its inclusion in the Beulah models in March 2017. The Australian Equities asset class outperformed the S&P/ASX 200 by almost 1 during the quarter with both Pendal Direct shares (up 1.52) and the OC Premium Small Companies Fund (up 4.9) contributing to the positive performance. Key stock performers include Telstra (+26), Metcash (+18.1) and Santos (+16.6) while the key drag was Origin Energy (-17.6) following softer than expected guidance as pressure around power prices increases. A-REITs fell 2 in the quarter. The models have no allocation to this asset class which helped performance in relative terms. We are underweight Fixed Income across the models which meant this asset class also made a positive contribution to performance relative to the composite benchmark even with stock selection detracting slightly. The Legg Mason Western Asset Global Macro Opportunities Fund was removed from the models in the quarter. The Fund is being impacted by an increasing number of headwinds motivating us to reduce exposure to emerging market debt. This has been one of the longest and largest periods of growth out performance versus value. However, history indicates these phases can turn sharply. Indeed, in the first two weeks of October, the S&P 500 retraced most of its third quarter gains. Over the same time, there was a sharp rotation in style leadership, with growth stocks underperforming after a stretch of strong gains. Outlook The global expansion remains solid, but many major economies have progressed toward more advanced stages of the business cycle. Global manufacturing activity is still expanding, but at a meaningfully slower pace. US earnings growth continued to improve on a trailing 12-month basis, helped by corporate tax cuts. Non-US developed and emerging market profit growth, however, has moderated from high levels. Forward expectations are for healthy but slower profit-growth rates for all three markets over the next year. We think the pessimism on European and Emerging Market equities looks overdone. The headwinds facing Europe are largely due to external factors, as domestic issues currently appear to be relatively contained. The euro could also provide a tailwind into year-end as it has been relatively weak versus the US dollar. Meanwhile, a sustainable rally in Emerging Market equities would require an improvement in the growth differential with Developed Markets which has fallen this year. We do expect such an improvement between now and mid-2019. We like select Asian countries but recognise that a worse than expected growth rate from China may disrupt the entire region, though this is not our base case. beulahcapital.com 5

That said, even though we believe much of the risks facing the regions outside of the US have been mostly priced in, we await more clarity on trade wars, the Fed and China stimulus before expecting to see any meaningful moves in these markets. Equity valuations remain above their long-term average in the US and below in non-us markets. Forward price-toearnings estimates suggest investors expect valuations outside the US to remain below long-term averages for the time being, while US valuations are projected to drop to near average levels. The risk of a more pronounced lift in US Government bond yields is growing. The Fed is becoming more determined to raise rates further. While the unusually large (and growing) borrowing needs of the US administration comes at a time when the Fed is selling down its bond holdings (as it unwinds its quantitative easing program). This means bond yields are likely to move higher. Rising US bond yields should spur higher interest rates in Australia. For the next few months Australian bond yields are likely to rise, albeit at a lesser pace than US bonds of comparable maturity. At some point in 2019 stronger Australian GDP growth is more likely than stronger US GDP growth and Australian bond yields could start to rise faster than their US counterparts. In the US, the peak boost to GDP growth from the Administration s tax cuts is occurring now. In Australia, fiscal spending initiatives are just starting to proliferate as the Government tries to influence its chances in the approaching Federal election likely next May. In the US, eight Fed interest rate hikes since late 2015 plus higher bond yields and fixed term mortgage rates are likely to be weighing on the economy in 2019. In Australia, the cash rate has been unchanged at a record low 1.50 and only recently have Banks begun some out of cycle rate hikes. The US economy is also facing head-winds from past US dollar strength and a mounting trade war. Australia has a tailwind from a mostly softer Australian dollar this year. Australia also has a build-up of big infrastructure projects extending into 2019 and well beyond. Some signs of a revival in the resources boom are also starting to show through too. So, the overall backdrop for Australian equities remains reasonable. A solid rate of economic growth domestically and globally, together with low wages growth underpins current earnings growth projections of around 6.5. Valuations appear reasonable and at a slight discount to global equities although on a sector adjusted basis, Australian equities appear expensive. Policy settings are also broadly supportive with the RBA on hold for an extended period and the currency in the low-70 cent range. The Australian market continues to face several risks, largely revolving around a more pronounced slowdown in China and a more severe downturn in house prices. Recent hikes in mortgage rates by most banks and the general tightening in lending criteria will underpin further house price falls, in turn undermining consumer confidence and spending. Political uncertainty leading up to the next Federal election, represents an additional source of risk for markets. beulahcapital.com 6